Investigating the Okun’s Law in Brazil and three of its Metropolitan Areas

The Okun’s Law has been frequently addressing in macroeconomic studies around the world, mostly at the national level, but few studies estimate such relationship at the regional level. This work, using 2002q1-2014q3 quarterly data, estimated the Okun’s coefficients for Brazil and for the metropolitan areas of Belo Horizonte, Porto Alegre, and São Paulo, using the differences version, the gap, and two specifications of the dynamic version of the Law, and the cyclical components were obtained by the HP filter, the linear trend, quadratic trend, and through Beveridge-Nelson decomposition. Results show that Okun’s Law is valid in Brazil as a whole and in one of the three metropolitan regions studied and there are regional differences in the responsiveness of labor markets to output fluctuations and deviations from their long-term levels.